Silver Divorce
You might be going through, or considering, a separation or divorce but the end of a relationship does not necessarily mean that you will have to sell your home. Your home may be able to give both partners a new start. For many, their home is their largest asset and where most of their net worth has accumulated. There are mortgage products available that can allow you to buy out the other party while enabling you to stay in your home. A divorce or separation doesn’t always mean you will have to sell your property. You will require a finalized separation or divorce agreement, as that is required by the lender and the agreement needs to clearly detail the asset allocation and any joint debts that need to be cleared. The mortgage funds can only be used to buyout the other party’s equity the home unless it is clearly laid out in the separation agreement that some joint debts need to be paid out to a maximum of 95% of the value of the property. The property must be your primary residence. Sometimes friends or siblings have bought a home and live together in the property. This program may be used in that circumstance also, but this will require an exception for an approval by the mortgage insurer. There are insured mortgage programs available that could help you stay in your home in the event of a separation, divorce or dissolution of a relationship by purchasing the home from your ex-spouse or partner for up to 95% of the home’s value. To qualify for this program you must be able to afford the mortgage payment on your own along with your other liabilities. Not only must the lender approve your application but also a mortgage insurer. Both parties must also be on title on the home prior to the separation. There are some differences between two of the programs. With the first mortgage insurer, the funds can only be used for a spousal buy-out or the dissolution of a relationship. This could be friends, relatives, etc. There cannot be any matrimonial debts or pre-payment penalties or fees included in the new financing. With the other mortgage insurer, the funds can only be used for a spousal buy-out and no other relationship breakdown but the new financing can include matrimonial debts if they are listed on the separation or divorce agreement. They will also allow pre-payment penalties and fees to be included. To qualify for both of these programs you must have good credit and earn sufficient income to support the mortgage payments. It’s so important to seek the advice of a mortgage broker very early in the process, as they can guide you along the way to a successful separation so you can both have the best possible outcome going forward. If you already have a separation agreement in place, they can show you how the value in your home can make it work out for you both. If you have any questions on this program, please give me a call at 1-941-624-4804 or email me at todd@homeforlifefl.com
5 Sources of Retirement Income You Probably Haven’t Considered Yet
If your retirement budget is feeling tight, consider these extra income sources. Planning for retirement can involve a lot of number crunching and strategy to ensure you’ll have enough money to live the life you want. While most people think of their investment accounts and Social Security as their main sources of retirement income, you may have quite a few other options available to you to help make sure you get to live your golden years in style. Here are five sources of retirement income you probably haven’t considered yet. 1. Home equity If you own your home outright, it may be a viable source for additional income in retirement. You could simply sell your home, downsizing to a smaller house. Doing so would give you access to a portion of the equity previously stuck in your home. You could spend the proceeds immediately or invest it for the future. Another option is to stay in your home and refinance. You may use a cash-out refinance to tap the equity in your home. The drawback of a cash-out refi is that you’ll now have a monthly mortgage payment to make. If that isn’t in your retirement budget, you may want to consider another option. A reverse mortgage is a home loan that uses the equity in your house, but it doesn’t need to be repaid with monthly installments. Instead, the mortgage company will recoup its loan when the property is sold. There are several ways to structure a reverse mortgage, and you could receive monthly income from your home. The biggest drawbacks of a reverse mortgage are that the interest rate is variable and they can have hefty up-front costs. 2. Annuities If you can lock in a great interest rate on a fixed annuity, it might be worth exploring the option for retirement. An annuity is a contract with an insurance company that will pay out a certain amount of money to you on a regular basis for the life of the contract. You can buy a lifetime annuity that will pay you every month until you pass away. That said, there are a lot of pitfalls with annuities. Some have hefty upfront costs and charge high ongoing fees. Be sure to understand the rate of return you’ll get on your money in the annuity and make sure the benefits outweigh the costs. 3. Health savings accounts You may have some money lying around in a health savings account that could be used as a source of retirement income. A health savings account, or HSA, is a special tax-advantaged account designed to help people with high-deductible health insurance plans pay for medical care. Employers will often help fund the account as part of their company-sponsored insurance benefit. There’s a tax benefit to using your HSA funds to pay for qualified medical expenses. However, the great thing about an HSA is that when you turn 65, you can use the funds for anything. The only catch is that you’ll have to pay income tax on the distributions. If you have an HSA and you don’t have a lot of medical expenses, you can look into investing the money in the account with the goal of saving it for retirement. If a medical emergency comes up along the way, you can always tap those funds early. 4. Rental income When people think of rental income, they think of owning a duplex or apartment building and renting it out. But you can generate rental income a lot of different ways these days. You’ll probably be driving a lot less in retirement. Maybe you only need one car most of the time. You can rent out a car on Turo. Maybe you’ll be going on vacation more often and for longer. You can rent out your home on Airbnb while you’re on vacation. Maybe you have some great period furniture that you’ve held onto throughout the years. You can rent it to staging companies (for home sales) or rent it as set dressing. You can rent just about anything you own these days and generate some income. 5. Part-time employment or a passion project You may surprise yourself and find you have a job in your retirement. A lot of retirees take on part-time employment in a low-stress environment. Not only does it provide a nice source of income, it can fill the days with meaning and activity. Others pursue a passion project in retirement. And after a few years, they start generating meaningful income from that project. Working in retirement can provide health and financial benefits, but be sure you understand how working in retirement will impact the rest of your finances and your overall retirement plans as well. Supplement your retirement If you think you might have to cut something from your retirement budget, be sure to review the above list for opportunities to supplement your income. Social Security and investments may only take you so far, so be sure to take advantage of any other resources you have at your disposal to achieve the best retirement for you. By Adam Levy– Sep 4, 2023
Reverse mortgage requirements
Key takeaways Reverse mortgages are a way for older Americans to access the equity in their homes and use it to fund retirement while still allowing them to live in the home. Such a mortgage pays the homeowner each month out of the home’s equity rather than the homeowner paying money to the lender. However, reverse mortgages can be complex, and there are strict rules and guidelines dictating who qualifies for these mortgages. These rules also dictate how much income a reverse mortgage can provide and how much they cost. It’s important to understand reverse mortgage requirements and rules if you’re considering this financial option. Reverse mortgage requirements There are a variety of requirements and eligibility guidelines to meet to qualify for a reverse mortgage. Reverse mortgage age limit First and foremost, the homeowner must be 62 or older. This is true for government-sponsored home equity conversion mortgages (HECM) and most private reverse mortgages. However, a small number of lenders may offer options for people as young as 55. Other reverse mortgage qualifications Beyond the age requirements, for reverse mortgages, you must meet the following additional requirements. The home you’re seeking a reverse mortgage on must be your primary residence. That means it must be the address where you spend most of the calendar year. Other reverse mortgage requirements are that your house must be in good shape, and you must participate in counseling that’s provided by a HUD-approved reverse mortgage counseling agency. During the counseling session, an agent will review your eligibility for a reverse mortgage and also discuss the financial ramifications. For instance, those who take out a reverse mortgage loan when they’re too young risk running out of money later in life, during a time when it’s likely income will be lower and healthcare bills may be steeper. Alternatives to reverse mortgages for those that don’t qualify If you’re looking to turn your home equity into funds but can’t qualify for a reverse mortgage due to age or other restrictions, consider some of the following options: Reverse mortgage requirement FAQs Mia Taylor Fri, September 1, 2023
Americans are raiding their 401(k)s
The data is in! More Americans are raiding their 401(k) accounts because of financial difficulties reports CNN. The most recent report from Bank of America released last Tuesday reveals that hardship withdrawals from 401(k)s increased 36% in Q1 of this year when compared to Q2 of 2022. The data was drawn from Bank of America’s analysis of their client’s employee benefits program which includes over 4 million plan participants. Hardship Withdrawals Hardship withdrawals can be taken for a variety of reasons including, purchasing a home, paying for educational expenses, and medical costs, or avoiding foreclosure or eviction to name a few. The IRS defines a retirement plan hardship withdrawal as, a “distribution from a participant’s elective deferral account made because of an immediate and heavy financial need, and limited to the amount necessary to satisfy that financial need. The money is taxed to the participant and is not paid back to the borrower’s account.” Keep in mind that not all 401(k) plans include a hardship withdrawal provision. Even worse, these withdrawals cannot be repaid like a loan which means the plan participant has permanently reduced their account’s earning potential. In part, hardship withdrawals are likely being fueled by inflation. As the cost of living surges consumers may opt to charge everyday expenses they once paid in cash. The New York Federal Reserve data shows that since 2019 overall household debt holdings have increased by $3 trillion while credit card debt exceeded $1 trillion for the first time! A future retirement crisis for younger workers Consequently, younger workers are likely to find themselves cash poor and hopefully house rich by the time they reach their 60s. But what about older Americans? Many have increased their systematic withdrawals from retirement savings to deal with the effects of inflation which substantially decreases the duration of their sustainable withdrawals- or how long that money will last. Others have chosen to work longer continuing to save and hoping the markets will be kind to their portfolio. Accessing untapped home equity is not guaranteed While this financial drama plays out millions of older Americans are sitting on, more precisely living in a substantial sum of home equity. Why do so few choose to even consider a reverse mortgage? One reason is many homeowners believe they will be able to tap into their home equity in the future should they need to. However, that strategy is risky at best. Lenders and banks routinely tighten their credit to consumers when economic conditions are uncertain or negative. Imagine the frustration when they learn that the value of their home is stuck in the bricks and mortar of their house unless they choose to sell. And despite what history has taught us most homeowners conveniently forget that their home’s value could drop, even significantly. How much of their home’s equity would be left then? Facing the hard truth So what can reverse mortgage professionals do? One is to understand the basic mechanics of retirement such as sustainable withdrawals, the distribution phase, required minimum distributions, and common pension benefits for surviving partners. Another key takeaway is to broach the question of how long their money will likely last. Some simple math can tell you roughly how long their current monthly distributions are sustainable. You certainly don’t want to give financial advice, but you also don’t want to ignore the elephant in the room. Even better, partner with financial professionals in your market who know these metrics better than anyone and who are well-versed in approaching these sensitive discussions. There’s no denying that Americans’ retirement is in disarray. The question is when will their largest asset be considered as a potential source of much-needed cash flow? by Shannon Hicks August 21, 2023
Some Extra Potential Sources of Retirement CashYou may have several sources of cash available to you for retirement that you had not considered, although using them to fund your retirement should be done only after careful consideration.
One such source is your home. One approach for retirees traditionally has been selling their homes and moving into a smaller home, then pocketing the difference. However, a slow housing market has hurt the ability of many seniors to tap their home equity in this manner. An alternative is reverse mortgages. They allow homeowners to tap home equity even if they can’t sell their home. With a reverse mortgage, a homeowner (usually 62 or older) borrows against the equity in the home and receives regular payments. Those payments are tax-free, just as the proceeds from any type of loan are not subject to income tax. Although a reverse mortgage is a loan, you are not required to repay anything until you sell or vacate the home. You must remain current on your tax and insurance payments, though. When a reverse mortgage borrower sells the house or dies, the lender will be repaid, plus interest. Typically, repayment will come from the sales proceeds. Reverse mortgages have upfront costs, paid by the borrower. Therefore, borrowers should intend to stay in the house for a while, after getting a reverse mortgage, to justify paying the initial charges. Another potential source of cash is a life insurance policy you no longer need. Perhaps your kids are finished with school and living independently. You might not want to keep paying steep premiums every year. One possibility is to surrender your policy. If it has cash value, you may wind up with some money. Another option is to sell your policy. This type of transaction is called a life settlement. Institutional investors buy pools of such policies and keep paying the premiums while awaiting a payoff. In some situations, you might get more from a sale than from a policy surrender: * You must have a severe health condition. Investors often buy from elderly individuals so a sale might work for your parents. * You must have the right kind of insurance policy. Buyers prefer universal life policies because they permit reductions in premium payments. Term life policies that can be converted to universal life also may be sought by buyers.
Reverse mortgages have garnered considerable attention over recent years, especially among homeowners above the age of 62. This form of financial assistance allows them to tap into their home’s equity, providing a much-needed income source during their retirement years. However, obtaining a reverse mortgage is not as simple as it may seem, and it involves several critical steps. This article explores these necessary steps to guide potential borrowers through the process.
Research and Understand What Reverse Mortgages Entail Before starting the process, it’s crucial to understand what a reverse mortgaga is. In essence, it is a loan available to homeowners who are 62 years or older, allowing them to convert part of their home’s equity into cash. Unlike a conventional mortgage, the borrower isn’t required to make regular monthly payments to repay the loan. Instead, the loan is repaid when the borrower no longer occupies the home as their primary residence, generally through selling the home. Despite the apparent advantages, reverse mortgages also come with potential risks and downsides, such as high upfront costs, decreasing the estate’s value left to heirs, and the possibility of losing the home if certain conditions aren’t met. Evaluate Your Eligibility Once you’ve understood the concept of a reverse mortgage, it’s essential to evaluate whether you’re eligible. Generally, to qualify for a reverse mortgage, you must: Counseling Session Prospective borrowers are required to undergo a counseling session with a government-approved agency. This step, mandated by the Federal Housing Administration (FHA), ensures that the homeowner fully comprehends the implications of a reverse mortgage, its costs, and its alternatives. Choosing a Reverse Mortgage There are three types of reverse mortgages: Home Equity Conversion Mortgages (HECMs), proprietary reverse mortgages, and single-purpose reverse mortgages. Each type serves different needs and comes with distinct rules and costs. HECMs are federally insured and backed by the U.S. Department of Housing and Urban Development (HUD). In contrast, proprietary reverse mortgages are private loans, and single-purpose reverse mortgages are offered by some state and local government agencies and non-profit organizations. Application Once you’ve decided on the type of reverse mortgage, the next step is to apply. The process typically involves providing information about yourself and your home. You’ll need to present some documents, such as proof of age, evidence of homeownership, and information on any existing mortgage loans on your property. Home Appraisal After applying, an appraisal will be done on your home to determine its market value. This value, along with your age and current interest rates, will be used to calculate the amount of money you can borrow. Underwriting Once the appraisal is complete, your application will be processed and underwritten. During this stage, the lender will verify your information, review the appraisal, and check if you meet all the necessary requirements. Loan Closing If your application is approved, you’ll move forward to the closing process. The loan closing involves signing the final documents and paying any closing costs or fees. Disbursement of Funds Once the loan is closed, you’ll have three business days to cancel the loan if you change your mind, a period known as the “right of rescission.” After this period, the funds from the reverse mortgage can be disbursed. Ongoing Responsibilities Securing a reverse mortgage also comes with ongoing responsibilities. These include living in the home as your primary residence, keeping the home in good condition, and continuing to pay property taxes and homeowner’s insurance. Failing to meet these requirements can lead to the loan becoming due and payable. In conclusion, while a reverse mortgage can provide much-needed financial relief, it is a complex financial product with significant implications. By understanding these necessary steps, potential borrowers can approach the process with confidence and make informed decisions. It’s also recommended to seek advice from a trusted financial advisor to determine if a reverse mortgage is the right option for your financial situation. By Catherine Tims | August 6, 2023
How a Reverse Mortgage Can Be Used to Purchase a Home
Reverse mortgages have traditionally been used as a way for older homeowners to access the equity in their home and receive regular payments, either as a lump sum, tenure or term payment, or through a line of credit, all without having to sell their property or make monthly mortgage payments. * But what if your client wants to sell their home and purchase a new one? Can a reverse mortgage be used for that? In short, yes, but let’s take a deeper look into how a reverse mortgage can be used to purchase a home. The Reverse Mortgage Purchase Process In a reverse mortgage purchase, the homeowner can use the proceeds from the sale of their existing home for the down payment on the new home. This, coupled with the reverse mortgage, can cover the purchase cost of the new home, allowing the borrower to keep more funds on hand. Plus, the borrower gets all the usual benefits of a reverse mortgage, including no required monthly mortgage payment.* With a reverse mortgage for purchase, selling the existing property and buying a new home can be done simultaneously. This type of reverse mortgage can be an attractive option for seniors who want to right-size or relocate and want to maintain a healthy cash flow. Qualifying for a Reverse Mortgage for Purchase To qualify for a reverse mortgage for purchase, there are some important considerations to keep in mind. Firstly, the homeowner must have sufficient equity in their current home or liquid assets to pay off any outstanding mortgage debt and provide a down payment for the new home. Secondly, the new home must meet the requirements for a reverse mortgage, including being the borrower’s primary residence, meeting FHA or product specific guidelines, and being an eligible property, such as a single-family home or approved condominium. Additionally, the borrower must meet the reverse mortgage requirements, including being age eligible and meeting a financial assessment. Conclusion In conclusion, a reverse mortgage can be used to purchase a home and can be a good option for senior homeowners who are interested in rightsizing or relocating. It can help them keep money in savings by using the sale proceeds as a down payment and letting the reverse mortgage cover the rest of the purchase. It comes with the same benefits that a reverse mortgage typically has, including being a non-recourse loan and having no required monthly mortgage payment.* A reverse mortgage for purchase takes some additional planning and consideration to ensure it is the right fit for the borrower, but it can be well worth it in the end. We recommend your clients speak with their financial advisor or reverse mortgage specialist to help them determine if it is the best option for their particular situation. Smartfi Contributor Our Smartfi Contributors are made up of a collective group of mortgage industry professionals, who share their personal opinions of the mortgage industry, topics, and various products. These are the express opinions of the Smartfi Contributor, and the article is based on their opinion and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by Smartfi Home Loans, LLC. Reverse mortgage proceeds may affect the eligibility and payments of Medicaid, SSI and similar program benefits. All clients should be advised to seek guidance on their financial situation with their financial planner/advisor. A reverse mortgage is not suitable for all clients in all situations. All loans are subject to loan underwriting and must meet all product requirements. Programs can change at any time, please see product handbooks for full underwriting guidelines. *Borrower must pay property taxes, insurance, any HOA fees and maintain the property.
The Big Squeeze
The Credit Crunch is Here Older homeowners are getting squeezed by loan rejections and skyrocketing homeowner’s insurance premiums We’ve warned repeatedly of the coming credit crunch, and now consumers are beginning to feel its impact. Just as mariners would ‘batten down the hatches’ when the ship was about to enter rough seas, lending institutions are aggressively moving to reduce their risk exposure to bad loans amid concerns of a looming economic recession. In the wake of one of the Federal Reserve’s most aggressive rate hike cycles large banks such as JP Morgan Chase, Wells Fargo, and Citigroup are setting aside more money to absorb an expected influx of bad consumer debt. It then comes as no surprise that the Federal Reserve’s Survey of Consumer Expectations survey found the overall rejection rate for credit applications jumped to 21.8% in June, up substantially from 17.3% in February. Considering these circumstances older homeowners seeking to refinance their existing mortgage or purchase a new home could find their loan application denied. In fact, the Fed’s survey found a 29.6% probability that home mortgage refinance applications would be rejected and a staggering 46.1% probability of traditional mortgage applications facing the same fate. Do retirees need access to more cash than ever before? There’s a strong case to be made for answering yes for two reasons. First, while somewhat moderated, inflation remains a persistent burden for Americans living on a fixed income. Much of that pain can be found in the Core Consumer Price Index or CPI which measures the change in the price of goods and services while excluding more volatile prices for food and energy. The Core CPI has been especially sticky while general or headline inflation has dropped more significantly since last June. The property insurance disaster Another reason many retirees have an increased need for access to cash is the implosion of affordable and accessible homeowners insurance. Florida has not only seen a record number of new residents arrive but natural disasters. Consequently, AAA, Farmers Insurance, and several lesser-known insurers have joined the growing list of companies that will no longer sell or renew policies in the Sunshine State. In an emailed statement to CBS AAA said, “Unfortunately, Florida’s insurance market has become challenging in recent years. Last year’s catastrophic hurricane season contributed to an unprecedented rise in reinsurance rates, making it more costly for insurance companies to operate.” Over 100,000 Floridians will be impacted by Farmer’s Insurance exit alone. However, Florida is not alone with Allstate and State Farm announcing they will no longer accept applications for property and casualty insurance in California citing increased wildfire risks and high construction costs. Even those seniors who may qualify for a mortgage could find their payments especially onerous not only because of higher interest rates but the massive increases in homeowners insurance premiums that are typically built into a mortgage escrow payment. Even worse, homeowners who cannot obtain or afford insurance could find themselves in default on their mortgage loan agreement and face foreclosure. Older homeowners in Florida and California may find themselves hammered by both a lack of access to credit and surging home insurance premiums. Perhaps a reverse mortgage could be a lifeline to provide the means of continuing to age in place in these most unsettled times. by Shannon Hicks July 24, 2023
Reverse in Real Life
When does a reverse mortgage make sense ? Julie: 87 years old • $0 mortgage • $1.1M home value When Julie was 60, she worked with her family to set up a Power of Attorney which designated her daughter, Francine, as her POA. As Julie aged, she experienced cognitive decline, which increased the level of care she needed. Julie expressed her desire to stay in her home, so Francine looked into in-home care options. Although Julie didn’t have enough income and savings to cover the in-home care costs, she had paid off her mortgage and built a significant amount of equity. Because of this, Francine decided to see how a Reverse Mortgage could help pay for her mother’s in-home care. After speaking with her financial advisor and a mortgage broker, Francine determined that a Reverse Mortgage was the best solution to paying for Julie’s care. Since Francine was established as Julie’s Power of Attorney before her mother’s cognitive decline (and she had doctor’s letters stating her mother was competent when designating her as POA), Francine was able attend counseling, sign the 1009, and obtain the loan on her mom’s behalf. Julie was able to stay in her home and get the care she needed.Smartfi Note: In this scenario, Francine was able to show that her mother established the POA when she was able to understand what the document was, what it did and what she was approving. This is important when it comes to a now “incompetent” borrower who has an appointed POA signing on their behalf.
RETIREMENT NEWS
Divorce Financial Realities as a Senior Marriage is typically good for your health. So why exactly are more older couples suddenly heading to divorce court? Disconnection, according to Jeff Rattiner, CPA, CFP® and author of Personal Financial Planning for Divorce. “Once the kids are grown and you have more free time, couples realize they no longer have much in common.” The phenomenon known as “gray divorce” is on the rise. According to the U.S. Census, nearly 35% of all divorces last year were among couples 55 or older. Those numbers may lead people to believe that getting a divorce is an easy solution. Not quite, according to Rattiner, who cautions his clients to be 100% certain and think through all aspects of splitting up before making a decision. For example, he says, “The financial aspects of divorce at a later age can be devastating. Together, you’ve saved for a certain scenario and have plans for retirement. Suddenly, you now have to fund 100% of those costs alone.” Rethinking your retirement plan The biggest issue, according to Rattiner, is figuring out how to make the numbers work in a compressed time frame. “Redesigning your financial plan is a significant move at this age. Couples who divorce in their 30s or 40s have the luxury of time to ramp up their savings. So it’s important to think things through rather than acting in the moment.” If you choose divorce after careful consideration, Rattiner recommends taking these steps: Change your passwords as soon as you’ve made a decision. This limits the possibility of financial retribution should your partner react poorly to the news. Make a list of what’s important to you. That might be a particular asset or possession, or safeguarding the inheritance of your children from a first marriage. Seek advice that’s specific to your needs. Divorcing later in life comes with different ramifications, so be sure to connect with an attorney, financial advisor and other trusted professional who has experience dealing with your situation. Rattiner reminds clients that it’s not business as usual during and after a divorce, so think about potential ramifications ahead of time and do everything you can to protect yourself. He adds, “You better be really sure, because once you start the process, there may be no turning back.” Take steps to protect your retirement financial security There’s no doubt that divorce at any age takes an emotional and financial toll. For older homeowners that may suddenly need to rethink retirement financials after a divorce, one often-overlooked asset you can put to work is your home equity. A reverse mortgage loan allows a homeowner or buyer to turn built-up equity into funds you can use for any purpose. Certain requirements apply. If you’d like to learn more about how a reverse mortgage works, please give us a call at 941-628-2849.